Consumer credit transactions account for a large portion of revenues for credit providers and other financial institutions. Most consumer transactions fall within the same general range of transaction amounts, and are typically less than $1000.00. This is because most consumers are largely dissuaded from entering into larger purchases using their credit cards due to the standard financing terms applied to purchases, which typically include interest charges on outstanding balances at an annual percentage rate (APR) in the range of 1% to 25%, compounded monthly.
There is presently little opportunity for ordinary customers to receive reduced financing terms on their credit cards. Some credit card providers offer incentives to adopt their credit card to new customers only, in which a lower APR may be charged for all purchases for an introductory period of time only. However, this opportunity is not provided to existing customers, and a higher APR is automatically applied after the introductory period regardless of the customer's payment or credit history.
In order to receive reduced credit financing at select locations only, customers could adopt certain “house credit cards,” i.e. merchant-specific credit cards, which typically offer reduced financing terms (when compared to the standard terms above) for purchases made using the house card. However, the usefulness of such merchant-specific cards is extremely limited, since they can not be used at other merchants or establishments. Thus, in order to receive reduced credit financing at various locations, many house cards would have to be obtained by a customer. Also, the vast majority of merchants in the U.S. marketplace do not offer house cards. Therefore, there is no opportunity for a customer to receive reduced credit financing for transactions involving such merchants.
Some prior credit programs have sought to introduce reduced financial terms to select purchases, but only if merchants performed additional steps in completing such transactions. Many merchants were dissuaded from entering these types of credit programs because of the additional processing required.
Credit providers receive their revenue from transaction fees that are largely based on purchase amounts, and so would benefit from additional revenue that could be obtained by offering incentives to customers to enter into larger credit transactions. Accordingly, there is a need for a method and apparatus for processing financial transactions subject to different financing terms that addresses certain problems with existing technologies.